August natural gas is expected to open a penny higher Friday morning at $4.13 as traders balance possible fuel switching by power generators and near-term warmth in the West and Southwest with expected large-scale cooling later next week. Overnight oil markets eased.
As weak as the market looks, analysts caution about trying to pick a market bottom. "[Thursday's] downside price response of around 5 cents to a slightly bearish storage figure appeared appropriate, and we see [Thursday's] fresh lows as setting the stage for additional price slippage to the $4.05 level by Monday at the latest," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients.
"[The] 93 Bcf injection narrowed the deficit against five-year averages by an additional 21 Bcf, a shortfall now approximating 27%. But the more important pricing element is the likelihood that the supply deficit will see further erasure in big chunks as a result of a substantial upcoming reduction in CDDs. Updates to the short-term temperature views are still favoring unusually cool trends, especially across most of next week when deviations from normal could be ranging from 10 to 15 degrees through much of the upper Midcontinent.
"Although a strong pace of production and possible utility switching back away from coal may be offering some counters to a bearish view, we don't expect a sustainable price advance until the weather forecasts normalize or indicate a shift toward some warmer trends. Furthermore, we still anticipate an unusually soft physical trading environment next week, with Henry Hub possibly establishing a brief $3 handle. As a result, we still see contango developing in the front spread. All factors considered, we feel that this market may be approaching a longer-term price bottom and as a result, risk-reward ratios are unfavorable for new short positions. But at the same time, we will caution against attempts to pick a bottom for now."
A weak futures market aside, physical trading may have a firm undertone for the weekend and Monday as triple-digit highs are forecast Monday for the Northwest, desert Southwest and portions of Texas. Look for market strength on Northwest Pipeline, Kern River, El Paso, and NGPL TX OK as The Weather Channel predicts a high Monday in Boise of 104; Las Vegas, 104; and Dallas, 102.
In its morning six-to 10-day outlook, WSI Corp. shows a large ridge of below-normal temperatures extending from New England to New Mexico and North Dakota to North Carolina. "[Friday's] six-10 day period forecast has trended warmer over the Rockies and cooler over the Northwest when compared to yesterday's forecast, [and] forecast confidence is considered just average standards due to fair large-scale agreement but models diverge late in the period, highlighting increased uncertainty.
"The latest European operational model forecast highlights another impressive anomalously cool air shot across the Rockies and Plains late in the six-10 day period forecast. This poses some downside risks to today's forecast over the central U.S. late."
In overnight Globex trading August crude oil fell 50 cents to $102.43/bbl and August RBOB gasoline shed a penny to $2.9469/gal.